A number of anonymous trading systems are known in the art. EP-A-0,399,850, EP-A-0,406,026 and EP-A-0,411,748 all assigned to Reuters Ltd disclose aspects of an automated matching system in which a host computer maintains a central database of bids and offers submitted by terminals connected to the host via a network. The host also maintains records of credit limits between each trading bank and the possible counterparties with which it is willing to trade. The host computer uses information in its central database to match bids and offers and buy and sell orders based on matching criteria which include the counter party credit limits.
Generally, counterparty credit limits are set for each bank or each trading floor and the host computer establishes a gross counter party credit limit for each possible pair of counterparties. The gross counter party credit limit is the minimum amount of remaining credit between two counterparties.
A trader's terminal will display a subset of the trading book, typically the best few bids and offers. These will be updated periodically to ensure that the trader sees the true state of the market.
A problem with the system outlined above is that the trader sees the bids and offers irrespective of whether he has sufficient credit with the counter party submitting that bid or offer to trade. As a result, a trader can attempt to trade when there is no available credit. As the system is anonymous the trader has no knowledge of the counterparty until a trade as been completed and so, when he hits a bid or offer, has no idea as to whether it is likely to be accepted or rejected for lack of credit. This is extremely frustrating for a trader, particularly in a fast moving market in which trading opportunities can easily be lost. The problem arises as the host computer only checks available credit after a deal has been proposed and a potential match identified.
This problem was solved in WO93/15467 now assigned to EBS Dealing Resources Inc. Instead of displaying the actual trading book, or a part of it, to each trader, a different market view is shown to each trader in which bids and offers from counterparties which whom they have insufficient or no credit are screened out. Thus, the trader only sees prices with which he knows he can deal.
The architecture of the system of WO93/15467 is very different from the of the Reuters system and is based on a distributed network with a number of arbitrators which perform matching. Actual credit limits are stored at local bank nodes to which each of a bank's trading terminals are connected ensuring that sensitive credit data does not leave the bank's physical site. The actual trading book is sent by the arbitrators to the market distributor. The market distributor forms a market view specific to a given trading floor and sends it to the relevant bank node. A different market view may be formed for each trading floor depending on credit criteria. Thus, the market view which is distributed to each of the bank nodes is the complete market view with credit screening taking place, the market distributor to filter out any prices with which the bank, or a given trading floor within the bank, has insufficient credit.
In addition, the market distributers also have limited credit information, maintaining a credit matrix which may store a simple “yes-no” credit indicator for given counterparties. When a match is made, the prices having already been screened for credit, the bank node will make a second credit check using the credit matrix to see whether any previously extended credit has already been exhausted.
In particular they are only able to accept the most limited few of orders to trade which is a simple order to buy or sell. In practice, trades often wish to place more sophisticated orders, especially when dealing in complex instruments such as futures or FRAs (Forward Rate Agreements). An existing FRA trading system sold by EBS Dealing Resources Inc has a limit ability to place limit type compound orders. A limit type compound order is a multiple order, for example, in a number of tenors which has an overall limit applied to it which is less than the total value of the orders. In the EBS FRA system, there is an order limit safety net which enables quotes to be cancelled once a limit has been reached.
There is no facility in any of the existing systems for conducting joint execution trades. Those are trades such as simultaneous buy and sell order, which must all be executed or the entire deal cancelled.
Without the ability to submit compound orders, traders cannot trade as effectively as anonymous trading systems as they are using conventional methods such as voice brokers. While this is not a major disadvantage for some markets such as F/X Spot, it is a very serious disadvantage when trading other financial instruments. It restricts the usefulness of existing systems and also restricts the spread of anonymous systems into markets which are still run using conventional open outcry methods.
It is therefore, desirable to be able to provide the ability to handle compound orders in anonymous trading systems beyond the very limited safety net type limit orders presently available on FRA trading systems.